New Report: The U.S. Has More 401(k) Millionaires Than Ever Even Though People Feel The Economy Isn't Doing That Well. What's Happening?

Many Americans are worried about high inflation, rising interest rates, and increased costs for everything from groceries to rent. Yet, despite all the economic anxiety, there's a surprising bright spot: the number of 401(k) millionaires has hit an all-time high.

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A new report from Fidelity Investments shows a record 497,000 people in the U.S. with over a million dollars in their 401(k) accounts. That’s a 2.5% increase from last quarter. The number of IRA millionaires also went up by 6%. 

So, what's happening? How are retirement savings growing when the economy feels uncertain?

The Power of Long-Term Saving

A key reason for this growth is consistency. Many of these 401(k) millionaires have been saving regularly for years – sometimes even decades. Take Gen X, for example. Those who have been putting money into their retirement plans for 15 years or more now have an average balance of $554,000. They see the rewards of sticking to their savings plans and setting aside around 17% of their income.

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The overall rate at which people save for retirement is also at an all-time high. Companies and employees contribute 14.2% on average to 401(k) funds, which is close to the recommended 15% contribution rate. This indicates that despite their daily financial difficulties, more people are contributing more money to their retirement accounts than ever.

This trend isn't limited to 401(k) plans. Gen X, often called the "401(k) generation" because they entered the workforce just as these plans were becoming popular, has also increased its IRA contributions by 30% over the past year.

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Inflation and Rising Costs

While retirement accounts are growing, it's easy to see why people still feel anxious about the economy. Although inflation is lower than its peak in 2022, it is still causing prices to rise. Since President Biden took office, inflation has increased prices by around 20%, making everyday expenses like food, rent, and gasoline more expensive. Lower-income Americans feel the pinch more, spending more on necessities, leaving less for savings.

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Many Americans are also worried about outliving their retirement savings. A Nationwide survey shows that about a quarter of non-retired investors believe they'll have to return to work after retirement due to inadequate savings, and 19% doubt they'll save enough to retire.

With 401(k) millionaires at an all-time high, it's clear that consistent saving, employer contributions, and the power of compound growth are helping many Americans succeed in retirement planning, even in tough economic times.

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